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NARCL offers too low, feel bankers

Mumbai: The first two offers to banks from the government-backed bad loan aggregator, National Asset Reconstruction Co Ltd (NARCL), has stunned bankers because of its low value, raising questions about the viability of the exercise. Bankers said the offers for Rainbow Papers and EPC company (CCC) is between 2% and 8% of the outstanding loans, making it difficult for them to consider.

In the case of CCC, bankers were stunned to receive a ₹60 crore bid for a total of ₹2,623 crore outstanding dues, a less than 3% recovery for banks. The NARCL bid even dwarfs the promoter’s offer for ₹195 crore, which had envisaged 7.5% recovery for banks.

Bankers were expecting better after they were offered ₹80 crore for their total outstanding dues of ₹1,136 crore for Rainbow Papers in June, a recovery of just 7%. Lead lender () is doing its own valuation following the NARCL offer.

In a meeting on the bid for the third asset, steel maker Mittal Corp earlier this week, lenders asked NARCL to improve their bids for the assets for the process to start in right earnest.

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“If the bids that have come are anything to go by then it is unlikely that banks will consider the NARCL bids. The fear is actually that with such low bids, NARCL will destroy whatever little value is there in the assets. A case in point is the CCC bid, which is not even a third of what the promoter offered a few months ago. Banks will have to reject these bids because they are too low,” said a person familiar with the bids.

Bankers point out that even the bids put forth by NARCL are not at full cash payments and will include 85% security receipts, which can be encashed later. This is against the normal practice by banks to only go for full cash settlements.

“Even when not offering full cash, the bids are abysymal. In fact it raises questions on the valuation matrix they have used. One understands that there may be claims and awards in EPC companies like CCC, for which recovery will be uncertain and it looks like they have valued those at zero, which is why they have arrived at such a low valuation,” said a second person aware of the bids.

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